Taxpayers are Indiana companies, which operate several truck stops in Indiana. Taxpayers sell tangible personal property and fuel at their truck stops. In 2012, the Indiana Department of Revenue ("Department") audited these truck stops for the tax years 2009, 2010, and 2011. Both Taxpayers and the Department agreed to use the agreed sample transactions (from Taxpayers' business records at one of the three truck stops) that occurred during 2009, 2010, and 2011, to project the audit result.
Pursuant to the audit, the Department determined that Taxpayers sold certain tangible personal property and fuel without collecting sales tax or exemption certificates from customers who claimed that they were exempt from the sales tax. The Department's audit also determined that Taxpayers purchased certain tangible personal property to be used in the course of its business without paying sales tax or use tax. As a result, the Department assessed additional sales and use tax, penalty, and interest.
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The Department's audit imposed additional sales tax on the ground that Taxpayers failed to collect and remit sales tax on the diesel fuel sold at their three truck stops. Taxpayers, to the contrary, claimed that more than 94 percent of the diesel fuel sales at the three truck stops were exempt and thus the audit's assessments were overstated. Specifically, Taxpayers claimed that, after the audit, they conducted their own sampling projection and concluded that 96.07 percent, 96.84 percent, and 94.2 percent of its diesel fuel sales at the three truck stops were exempt by using the exemption certificates they obtained from their customers for the transactions occurred during January 1, and through May 31, 2013. Taxpayers further referred to a study which they conducted in August 2013 at all three truck stops to reiterate the similar assertion (the "August 2013 study").
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In this instance, Taxpayers asserted that the audit's assessments were overstated; they relied on a post-audit sampling method, using the exemption certificates they obtained from their customers for sales occurred during January 1 and through May 31, 2013, and the August 2013 study.
Upon reviewing Taxpayers' supporting documentation, their reliance on the post-audit sampling result and the August 2013 study is misplaced. First, as discussed earlier, both Taxpayers and the Department agreed to use statistical sampling, based on Taxpayers' 2009, 2010, and 2011 records, to determine the audit result. Thus, both Taxpayers and the Department are bound by the agreement and the result. During the audit, the Department allowed Taxpayers reasonable time to submit additional documentation, including the required exemption certificates, to support their assertion that some customers were exempt from sales tax. However, Taxpayers did not do so. Rather, Taxpayers referred to their 2013 records which are outside the agreed sampling period. Thus, the Department is not able to agree that Taxpayers met their burden.
Pursuant to 45 IAC 2.2-8-12 (b), "Retail merchants are required to collect sales and use tax on each sale which constitutes a retail transaction unless the merchant can establish that the item purchased will be used for an exempt purpose." 45 IAC 2.2-8-12 (d) also cautions that, "Unless the seller receives a properly completed exemption certificate the merchant must prove that sales tax was collected and remitted to the state or that the purchaser actually used the item for an exempt purpose. It is, therefore, very important for the seller to obtain an exemption certificate in order to avoid the necessity for such proof." In the absence of the properly signed and executed exemption certificates, the Department's audit properly assessed sales tax on the otherwise taxable sales.
Taxpayers are reminded that sales tax becomes due at the time of the transaction; either the purchaser is exempt at the time of the transaction or it is not exempt. If the purchaser claims an exemption, the exemption certificate should be obtained at the time the transaction occurs; otherwise the burden of proving the transaction was exempt becomes measurably more difficult.
Thus, given the totality of the circumstances, in the absence of other supporting documentation, the Department is not able to agree that Taxpayers met their burden of proof to demonstrate that the proposed assessment is wrong.
